Productive or unproductive, that is the question

When I ask economist and author Ross Garnaut which infrastructure projects in Australian history have impressed him the most, it takes just a split second for him to respond: “Our public school system, in the second half of the 19th century, which made us the most literate community on Earth, by far.”

After a pause he mentions the Victorian State Library.

This isn’t a huge surprise. Garnaut is a prodigious reader (he expresses shame at not having read a book I mention, Alfred Deakin’s Irrigated India, published in 1893) and a respect for knowledge is central to all his endeavours.

His latest book, Reset, written in Melbourne last year, emphasises the point: “Knowledge is the foundation of successful public policy across all political systems,” he writes. The Australian nation “was built on respect for knowledge” – and this includes economic knowledge.

“I think it’s a very big pity that we’ve crippled our universities financially,” Garnaut tells me. “That’s a big deal. They’ll be a long time recovering and that has general economic effects.

“There’ll be a weaker export industry than there would have been even when borders are open again. We will slide down the scale of global rankings on research excellence, and that will make us less attractive for foreign students.

“So that’s a big pity. And having a strong intellectual base is important for a whole lot of things.”

Knowledge is the foundation of successful public policy across all political systems

When we turn to how he might put his own knowledge to use, spending the Federal Government’s $15 billion infrastructure budget, Garnaut cheerfully explains why he thinks the question needs to be recast.

“I’m not altogether comfortable with a distinction between infrastructure and other expenditure. The right distinction is between productive and unproductive spending. Investment in preschool education is one of the most productive things that we can do and it’s not infrastructure. I don’t think it’s a relevant categorisation.

“We spent an enormous amount in this budget, hundreds of billions of extra expenditure, and very, very little of it has gone into things that will increase the productive capacity of the economy and society in the longer term.”

Garnaut has no reservations outlining his ideas for productive spending in a post-COVID, post-Trump world – priorities summed up in a speech delivered last week to the Australian Minerals Council by the Sydney-born chair of Tesla, Robyn Denholm, who said Australia had the opportunity to be “not just exporting these raw minerals, but … exporting high value climate solutions.”

Garnaut liked the line. “She said that every Tesla car has $5,000 worth of processed metals in it, all of which are made from minerals which Australia can produce. Aluminium, nickel, copper and lithium – we’re major producers of all of these things – but most of these we’re not processing.”

Instead, we export our gas and coal abroad for other people to turn into products.

The Australian mining industry should be exporting refined minerals to the world instead of exporting climate change

“If you’re asking me for priorities, the biggest one is iron ore, where the zero-emissions path to turning iron ore into iron metal is by use of zero-emissions hydrogen. We’re the natural place to do that.

“Asked for a single priority? Big grants to make sure we’re the first place in the world where that happens at scale.” The Germans, French and Swedes are already doing it, but Garnaut argues if we get in now, our natural advantages will make up for the delay.

“So, iron ore’s a big one. About 7% of global emissions are from [the] conversion of iron oxide into iron metal in standard blast furnaces using coke from coal. We are by far the biggest exporter of iron ore. We supply around 40% of global iron oxide. Process that into metal at home, and we’ve reduced global emissions by about 3%. That’s three times as much as we reduce global emissions if we reduce our own net emissions to zero.”

Australia is also the world’s biggest exporter of aluminium oxide, and the same principle applies.

“We’re a tiny producer of aluminium compared with our production of aluminium oxide. We produce about 1% of the world’s aluminium. The first thing we should do is convert the Australian smelters to use of renewable energy.

“Aluminium is a very big opportunity. Putting money into ways of lowering the cost of that transition will be very important. And what we get out of that is, not only will we keep the three smelters in Portland, Newcastle and Gladstone – which will otherwise be dead by the end of the decade – this will be a much larger industry.”

There are many others he identifies, including huge lithium resources, that should also be processed into final products here.

“The chair of Tesla said in her speech that most of the lithium, a huge amount of lithium, used by Tesla, comes from Australia. We should go as far as we can in the refining area. Nickel, copper. All are more competitively taken right through to the metal stage in a world of zero emissions.”

Garnaut believes that Australia should be a superpower in renewable energy instead of the outlier we are, spending hundreds of millions “in one way or another” on a so-called ‘gas fired recovery’. The Australian Renewable Energy Agency (ARENA) has done “a reasonably good job in the renewable energy sector” but needs much more investment. “I would have put 10 or 20 times as much money into ARENA for supporting zero-emissions industries,” he says.

The other great opportunity for research and development investment is sequestering carbon in soils and plants and growing biomass to replace coal, gas and oil in chemical industries.

“Plastics in future will not be made from gas and coal, as at present; they’ll be made from biomass. There’s nothing that biomass that was buried in the earth 300 million years ago can do that biomass grown today can’t do.

Plastics in future will not be made from gas and coal, as at present; they’ll be made from biomass

“We need a lot more basic science on this. We only have successful agriculture in Australia because of huge early investment, public investment, in research on how to turn this difficult arid continent with denuded soils into an agriculturally productive place.

“You couldn’t simply take techniques from Sussex or Kent and plant them in Dubbo or the Darling Downs.”

Garnaut believes the way to reset the Australian economy is already well laid out. “We don’t have to do things differently. We just have to do things as well as we used to do.”

“We were famous in the 19th and the first half of the 20th century for the quality of our agricultural research. Now, agriculture has changed.

“A lot of the new opportunities are in sequestering carbon in soils and plants alongside traditional agriculture. The two can help each other. But just as we needed a lot of research and development to get the early industries going, we need research now, to identify the best plants in the best places, the best ways of processing them.

“What the state departments of agriculture and the universities and the CSIRO used to do, they’ve got to do again, but for different crops.”

There’s no way in the world that we are going to permanently remain the world’s leading opponent of action on climate change

Garnaut sees a tremendous role for Australia if we don’t let the opportunity pass by.

“We know we have to get there. There’s no way in the world that we are going to permanently remain the world’s leading opponent of action on climate change, as we are at the moment.”

Ross Garnaut is an economist, Professorial Research Fellow in Economics at the University of Melbourne and a Fellow of the Australian Academy of Sciences. He led the 2008 Garnaut Climate Change Review and his many books include Superpower: Australia’s low-carbon opportunity and Reset: Restoring Australia after the Pandemic Recession.